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Tuesday, February 11, 2014

Remember JP Morgan Chase's agreement with the federal government to pay $13 billion to settle claims that it knowingly sold faulty mortgage securities that contributed to the financial crisis? For a refresher, go here and here.

Now, the non-profit group Better Markets -- whose tagline says it is a "nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets" -- has filed this complaint seeking to scuttle the deal. The complaint starts boldly:

This is an action under the Constitution of the United States, the Administrative Procedure Act (“APA”), and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), against the United States Department of Justice and the Attorney General of the United States, Eric H. Holder, Jr. (together, “DOJ”), challenging the validity of the historic and unprecedented $13 billion contractual agreement between the DOJ and JPMorgan Chase & Co. (“JP Morgan Chase”) that was announced on November 19, 2013 but never reviewed or approved by any court (“$13 Billion Agreement”).

The 130-paragraph complaint includes a request that DOJ be permanently enjoined "from enforcing the $13 Billion Agreement unless and until the DOJ submits the $13 Billion Agreement to a court so that such court may review all the facts and circumstances, enlarge the record supporting the $13 Billion Agreement as it deems necessary, and determine whether the $13 Billion Agreement meets the applicable legal standard of review."

A key allegation in the suit is that a settlement of the size and importance of the deal with JP Morgan Chase may not lawfully be finalized without public scrutiny and judicial approval. As the complaint puts it:

While such actions, agreements, and settlements might be permissible under other circumstances, the DOJ does not have the unilateral authority to, by contract and without any judicial review or approval, (a) finalize what it admitted is “the largest settlement with a single entity in American history,” with the largest bank in the U.S., regarding an historic financial crash that has inflicted widespread economic wreckage across the U.S.; (b) obtain an unprecedented $13 billion monetary payment, including an historic $2 billion penalty; (c) tell the American public almost nothing about what was involved; (d) provide blanket immunity to the bank; and then, (e) as the DOJ has stated, use it as a template for future contractual settlements with the other largest too-big-to-fail Wall Street institutions for their role in causing or contributing to the Financial Crisis. The DOJ and the Attorney General have used the settlement amount of $13 billion as a sword and a shield to deflect questions and blind people to the utter lack of meaningful information about their unilateral action and JP Morgan Chase’s illegal conduct. However, a record-breaking settlement amount does not make an agreement right, adequate, or legal. A dollar amount, no matter how large, cannot substitute for transparency, accountability, oversight, or a government that operates in the open, not behind closed doors. Such actions, however well-meaning or motivated they might be, will erode public confidence in government officials and, indeed, government itself. Thus, even an unprecedented settlement amount cannot blind justice or immunize the DOJ from having to obtain independent judicial review of its otherwise unilateral, secret actions regarding such historic events.

DOJ will no doubt claim that Better Markets lacks Article III standing. Here's what the complaint has to say about that:

As set forth in detail below, the DOJ’s failure to obtain the required judicial review of the $13 Billion Agreement has injured and continues to injure Plaintiff Better Markets, Inc. (“Better Markets”) by undermining its mission objectives; by interfering with its ability to pursue its advocacy activities; by forcing it to devote resources to identifying and counteracting the harmful effects of the DOJ’s unlawful settlement process; by depriving Better Markets of the information to which it would have been entitled had the DOJ sought judicial review and approval of the $13 Billion Agreement; and by depriving Better Markets of a judicial forum in which it could seek to participate to influence the settlement process before the agreement becomes effective.